Exterior of a new 220,000-square-foot spec warehouse, right, being built by Chicago-based HSA Commercial on Columbia Road in Plainfield. Entrances and loading docks in each corner mean it can be subdivided for four tenants if necessary.
(Photo:
Joe Vitti/The Star
)

With the economy looking up, Bob Smietana decided last year to move forward with his company's first industrial project in the Indianapolis market since the recession.

Chicago-based HSA Commercial is building a $7 million, 220,000-square foot speculative warehouse project in Plainfield, near Indianapolis International Airport, and Smietana believes the market is strong enough to lure tenants after the project opens.

"I think we're seeing a good business environment in Indianapolis," Smietana said. "Those of us in Illinois are sort of envious of the business-friendly ways in Indiana."

Smietana's investment in the expected growth of the industrial market in Central Indiana is part of a new trend, now that the recession is receding into memory.

Indianapolis is one of the five hottest industrial markets in the nation, according to Indianapolis real estate services firm Cassidy Turley, ranking right up there with Dallas, Chicago, Phoenix and Atlanta. Consider this evidence:

¦ Nationwide, nearly 54 million square feet of new industrial buildings was under construction in 2013, up 33 percent from 2012. That includes 3.3 million square feet built in Indianapolis, the most since the recession.

¦ Companies signed new leases on 7.5 million square feet of industrial space in 2013 in the metro area, up from 4.2 million square feet a year earlier.

¦ Metro-area companies renewed leases on another 7.8 million square feet of space, up from 6.3 million square feet a year earlier.

According to Ball State economist Michael Hicks, manufacturing boosts the economy more than any other industry sector. For every $1 spent on manufacturing, according to the National Association of Manufacturers, another $1.48 is added to the economy through local purchases of goods and services by the companies and employees, the highest multiplier effect of any sector.

Hicks said the state is well-positioned to maintain that industrial growth.

"The fact that they (developers) are choosing Indianapolis means the business environment here is very strong," he said.

Secondary markets are growing

Secondary markets with strong underlying economics, such as Indianapolis, are performing well as investors seek a larger return on their investments, said Sam Chandan, an economist with NAIOP, a commercial real estate development association.

The cost of land, construction and doing business, Chandan said, are lower in mid-sized cities such as Indianapolis.

"People are feeling better about the direction of the economy and the yields on investments in the big markets have gotten low," he said. "The yields on investments in the secondary markets (also) look more attractive."

Weishaar said he works with companies that are looking throughout the Midwest for industrial space, including Chicago, Columbus, Ohio; and Nashville, Tenn. Many, he said, are finding Indianapolis the most-attractive location.

Since 2010, Indianapolis has grown its industrial inventory by 6.2 percent, adding 15.1 million square feet, a higher percentage than any of the top industrial markets, except Phoenix.

"Overall, the market has been very, very healthy," Weishaar said. "It's been a good time to be an industrial real-estate broker in Indianapolis."

Distribution leads way

The majority of the industrial growth in Indianapolis has been in distribution warehouses, said Jason Tolliver, a vice president at Cassidy Turley. Companies such as Wal-Mart, Amazon, Johnson & Johnson and Gordmans have built large distribution centers to ship products across the country.

"The Indianapolis market is driven by distribution," Tolliver said.

Lured by Indianapolis' distribution network, Omaha, Neb.-based Gordmans opened a $37.5 million, 545,000-square-foot distribution center in November, north of Monrovia and west of Plainfield in Hendricks County. It intends to add 250 jobs there by 2017.

Aasif Bade, president of Indianapolis-based Ambrose Property Group, developed the project. Ambrose has specialized in office and retail space since opening in 2008, and this was the company's first foray into industrial space.

Encouraged by the market, Ambrose has broken ground on another industrial project near the airport, a 400,000-square-foot facility for which he is currently in negotiations for a tenant.

"We feel like this is a market we can excel in," he said.

Indiana ranks second in the nation with more than 13,400 manufacturing jobs added in 2013. The average manufacturing job paid $77,505 with benefits in 2012, above the average of $62,063, including benefits, in all industries nationwide, according to the Manufacturers Association.

Those figures include advanced-manufacturing positions. The average wage for jobs in the distribution and warehousing industry are generally lower, averaging $31,638 in Indiana, according to the 2012 Occupational and Employment Summary from the U.S. Department of Labor.

Plainfield, in convenient proximity to Indianapolis International Airport and its adjacent Fedex facility, has drawn the majority of industrial prospects.

The town has aggressively sought industrial growth, landing more than 32 million square feet of such space, since Mac McNaught of Denison Properties began marketing the town's Airwest Industrial Park in 1992.

Town Manager Rich Carlucci said activity has picked up in recently in Plainfield, after a lull during the recession.

"There has been a lot of activity, especially on the northern end (of the development), he said. "I think we're in a better position than most anywhere in Central Indiana."

Brokers and developers, though, say that while land and space in Plainfield is attractive, it's becoming increasingly difficult to find.

"They're going to hit that ceiling eventually," Weishaar said. "It's significantly built out, but by no means is it completely built out."

Because of that, industrial projects have been seeking new frontiers, especially along the I-65 corridor near Greenwood, Whitestown and Lebanon.

In an $18 million project, GNC, a company specializing in health and fitness supplements, in November leased 342,840-square-foot in a 599,870 spec building built by Duke Realty and Browning Investments near I-65 in the Allpoints at Anson development in Whitestown. The developers are marketing the remaining 257,030 square feet for lease.

In Lebanon, Prologis built an $18 million, 715,000-square-foot Subaru distribution facility in Lebanon off I-65 in 2013.

In Greenwood, beauty products company ULTA on Thursday announced that it would build a $52 million, 670,000-square foot distribution center.

But a small, unincorporated community southwest of Plainfield — and near I-70 — called Monrovia has started to draw serious attention, too.

The 1.1-million-square foot, $82 million Johnson & Johnson distribution center and the Gordmans' $37.5 million distribution center are the first two projects to locate in that area that is just north of Monrovia but still in Hendricks County. The community still is close to the airport, plenty of land is available and it has interstate connections.

Fishers-based Sunbeam Development has purchased a 685-acre industrial site and plans a 600,000-square foot speculative facility in the Monrovia area this year, in hopes of landing tenants once the project opens. The empty site had been on the market for nearly five years.

Bade, of Ambrose Property Group, said his company controls the development rights to about 100 acres in the Monrovia area. He plans to eventually build up to 2 million square feet of industrial space there.

"We feel like this is a great location," he said. "It's clearly the next frontier."

The future

The outlook for the Indianapolis market remains strong, brokers say.

Job growth and unemployment in Indianapolis are both outperforming the national average. Housing, an industry which accounts for 14 percent of the industrial growth in the region, according to Cassidy Turley, continues to rebound.

Cassidy Turley predicts 2014 will see a new post-recession high for occupied industrial space.

Companies such as HSA Commercial are looking to build spec industrial projects, banking on their ability to sign tenants later.

Smietana's company previously developed three industrial buildings in Plainfield before the recession — all of which are fully leased — before beginning construction on its fourth last year.

HSA Commercial builds in 14 states in the Midwest and Southeast, and Indianapolis, he said, is among the company's strongest markets.

"It would be an understatement to look at Indianapolis as a second-tier city," Smietana said. "The kind of activity we are seeing, the friendly business perspective of the state in general, I think it's moving up the ranks."